Written by: Chris Cogliano, Portfolio Specialist/Investment Analyst
Welcome to our monthly market update.
Key Takeaways
- Interest rate-sensitive asset classes (real estate and fixed income) outperformed due to lower rates driven by growth uncertainty and a flight to safety.
- International equities benefited from USD weakness and relative value compared to U.S. markets.
- U.S. equities faced headwinds from growth concerns and stretched valuations, leading to underperformance, especially in small caps.
Summary: This performance reflects a broader market rotation toward defensive assets amid concerns about economic growth sustainability and valuation risks in riskier equity markets.
Real Estate and Fixed Income
- Real Estate led the market with a return of +3.70%, benefiting from lower interest rates driven by growth uncertainty. Real estate is highly sensitive to rate movements, as declining borrowing costs improve profitability and valuations.
- Broad Fixed Income Bonds gained +2.20%, reflecting a flight to safety amid economic concerns. Lower rates increase bond prices, particularly for high-quality debt instruments.
- Investment-Grade Corporate Bonds delivered a return of +1.99%, supported by similar dynamics as broader fixed income markets, with investors seeking stability in high-quality debt.
Summary: The strong performance of these rate-sensitive asset classes indicates a market rotation toward defensive investments as growth concerns prompted a flight to safety.
International Equities
- Developed International Markets delivered a return of +1.95%, benefiting from a weakening U.S. dollar. A weaker USD makes international assets more attractive for dollar-based investors and improves competitiveness for companies in developed markets.
- Emerging Markets posted a modest gain of +0.50%, supported by similar currency dynamics and relative value compared to U.S. equities.
Summary: International equities outperformed U.S. equities due to favorable currency movements and their relative value appeal compared to higher-priced U.S. markets.
Commodities
- Broad Commodities were barely positive at +0.14%, indicating flat performance in this asset class. This suggests limited demand for inflation hedges or commodity exposure during this period.
U.S. Equities
- Large-Cap U.S. Equities declined by -1.30%, reflecting growth concerns as valuations reached elevated levels following strong prior performance.
- Small-Cap U.S. Equities dropped significantly by -5.35%, highlighting underperformance in small-cap stocks, which are more sensitive to economic uncertainty and higher valuations.
Summary: U.S. equities took a breather as growth concerns mounted, with investors wary of lofty valuations and potential headwinds for earnings growth.
If you have any questions, please reach out to your Shepherd Financial Partners team.
Disclosures
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Investment advice offered through Shepherd Financial Partners, LLC. A registered investment advisor. Registration as an investment advisor does not imply any level of skill or training.
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The content is developed from sources believed to be providing accurate information.
Source: YCharts
Tracking #: 706557-1